Freddie Mac 2015 Annual Report Download - page 152

Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile
Freddie Mac 2015 Form 10-K 150
LIQUIDITY PROFILE
During 2015, the majority of the funds in our liquidity and contingency operating portfolio were deposited
with the Federal Reserve Bank of New York, invested in U.S. Treasury securities, or invested in securities
purchased under agreements to resell. In the event of a downgrade of a position or counterparty, as
applicable, below minimum rating requirements, we make an assessment whether to exit the existing
position or continue to do business with the counterparty.
During 2015, we had sufficient access to the debt markets due largely to support from the U.S.
government. We rely significantly on our ability to issue debt on an on-going basis to refinance our
effective short-term debt.
Our debt cap under the Purchase Agreement was $563.6 billion in 2015 and declined to $479.0 billion on
January 1, 2016. As of December 31, 2015, our aggregate indebtedness, calculated as the par value of
other debt, was $418.0 billion. We disclose the amount of our indebtedness on this basis monthly under
the caption “Other Debt Activities - Total Debt Outstanding” in our Monthly Volume Summary reports,
which are available on our web site at www.freddiemac.com.
Our ability to maintain sufficient liquidity, including by pledging mortgage-related and other securities as
collateral to other institutions, could cease or change rapidly and the cost of the available funding could
increase significantly due to changes in market interest rates, market confidence, operational risks, and
other factors.
To fund our business activities, we depend on the continuing willingness of investors to purchase our debt
securities. The reduction in our mortgage-related investments portfolio has reduced our funding needs.
We expect that this trend will continue over time as the mortgage-related investments portfolio shrinks.
Changes or perceived changes in the government's support of us could have a severe negative effect on
our access to the debt markets and on our debt funding costs.
In addition, any change in applicable legislative or regulatory exemptions, including those described in
“Regulation and Supervision,” could adversely affect our access to some debt investors, thereby
potentially increasing our debt funding costs. For more information on our short- and long-term liquidity
needs, see “Contractual Obligations.”
OTHER DEBT ACTIVITIES
We fund our business activities primarily through the issuance of short- and long-term debt. Competition
for funding can vary with economic, financial market, and regulatory environments. Historically, we have
mainly competed for funds in the debt issuance markets with Fannie Mae and the FHLBs. In recent years,
we have witnessed a significant increase in FHLB short-term debt issuances and outstanding balances.
Increased competition from the FHLBs with respect to short-term debt issuances may have caused our
short-term debt spreads to increase during the last quarter of 2015.
The table below summarizes the par value of other debt securities we issued or paid off during 2015 and
2014, including regularly scheduled principal payments, payments resulting from calls, and payments for
repurchases. We repurchase, call, or exchange our outstanding debt securities from time to time for a
variety of reasons, including managing our funding composition and supporting the liquidity of our debt
securities.